Why is Tetra (TTEK) up 2.4% since its last earnings report?

It has been about a month since Tetra Tech (TTEK) last reported earnings. Shares rose about 2.4% in that time, underperforming the S&P 500.

Will the recent positive trend continue leading up to its next earnings release, or is Tetra headed for a decline? Before we dive into how investors and analysts have reacted as of late, let’s take a quick look at the company’s most recent earnings report in order to better understand the important catalysts.

Tetra Tech beats second-quarter earnings and raises 2024 forecast

Tetra Tech reported fiscal second quarter 2024 (ended March 31, 2024) adjusted earnings of $1.42 per share, beating the Zacks Consensus Estimate of $1.31. The financial result increased by 21.4% year-on-year, thanks to strong dynamics in each segment.

The bottom line also exceeded management’s earnings per share guidance of $1.25 to $1.35.

Segment revenues and results

Tetra Tech generated adjusted revenues of $1.3 billion, reflecting 8.1% year-over-year growth. Adjusted net revenues (adjusted revenues minus subcontractor costs) were $1.1 billion, up 9% year-over-year. Quarterly profit exceeded management’s forecast of $990 billion to $1.04 billion.

Tetra Tech’s revenues surpassed the Zacks Consensus Estimate of $1.0 billion.

Backlogs at the end of the fiscal quarter were $4.7 billion, up 24% year-over-year.

Revenues from U.S. federal customers (representing 31% of quarterly revenues) increased 14% year-over-year, supported by higher federal organic sales. U.S. commercial sales (17% of quarterly revenue) declined 2% year-over-year due to the timing of remediation activities.

U.S. state and local sales (11% of quarterly revenue) increased 14% year-over-year, driven by strength in advanced water treatment. International sales (41% of quarterly revenues) increased 17% year-on-year, supported by stronger UK water planning and design sales.

Tetra Tech reports revenues within the segments discussed below:

Government Services Group segment net sales were $466 million, up 15% year-over-year. The Zacks Consensus Estimate calls for segment revenue of $429 million. Revenues from the Commercial/International Services Group segment were $586 million, up 10% year-over-year. The segment’s consensus revenue estimate was $601 million.

Margin profile

In the fiscal second quarter, Tetra Tech’s subcontractor costs were $199 million, an increase of 5.5% over the prior-year quarter. Other revenue expenses (adjusted) were $845.1 million, an increase of 5.5% compared to fiscal second quarter 2023. Selling, general and administrative expenses were $89.8 million, an increase of 9.1 % compared to the corresponding quarter of the financial year.

Operating income (adjusted) increased 34.1% year over year to $118 million, while adjusted margin decreased 210 basis points to 11.2%.

The story continues

Balance sheet and cash flow

At the end of the second quarter of fiscal 2024, Tetra Tech had cash and cash equivalents of $210.3 million, compared to $168.8 million recorded at the end of the fourth quarter of fiscal 2023. Long-term debt was $951 million, compared to $879 .5 million recorded at year-end fourth quarter fiscal 2023.

During the first six months of fiscal year 2024, Tetra Tech generated net cash from operations of $112.2 million, compared to $113.1 million in the comparable period of the prior fiscal year. Capital expenditures were $7.5 million, down 27.5% year over year. During the fiscal period, TTEK’s loan proceeds amounted to USD 180 million and long-term debt repayments amounted to USD 110 million.

Shareholder-friendly policy

Tetra Tech paid dividends totaling $27.8 million during the first six months of fiscal year 2024. This result compares favorably with the $24.4 million dividend paid during the same fiscal period last year.

Increased budget perspective for 2024

For fiscal year 2024 (ended September 2024), Tetra Tech projects net revenues of $4.21 billion to $4.31 billion, compared to previously expected $4.15 billion to $4.30 billion. Adjusted earnings per share are expected to be $6.15 to $6.25, compared to previously expected $5.90 to $6.20.

Management estimates net revenue for the third quarter of fiscal 2024 (ending June 2024) to be $1.05 billion to $1.10 billion. Adjusted earnings per share are expected to be $1.50-$1.55.

How have estimates changed since then?

It turns out that the review estimates have been trending upwards over the past month.

VGM results

Currently, Tetra has a solid Growth Score of B, although it lags slightly behind its Momentum Score of C. Plotting a somewhat similar path, the stock is given a grade of D on the value side, placing it in the bottom 40% for this investment strategy.

Overall, the stock has a Total VGM Score of C. If you’re not focused on one strategy, this score should interest you.

Perspectives

Estimates for this company show an upward trend, and the scale of this revision looks promising. It’s no surprise that Tetra has a Zacks Rank #2 (Buy). We expect an above-average rate of return on shares in the coming months.

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